All Canadians are paying the price for ‘conceal’ estate in Toronto and Vancouver

The latest attraction in London is the Kleptocracy Tour, organized by anti-corruption groups. They drive customers through neighborhoods that have become the world’s most expensive square footage, thanks to the flood of dirty money bidding up real estate values.

The tour is interesting, I’m told, because the Brits more or less know who owns what because their press is vigilant – and because the expats are often flamboyant. But many, notably those who continue to loot their countries or are serial crooks, try to stay under the radar. But everyone feels their presence. London houses are unaffordable, posh restaurants reservations are impossible to obtain and, besides, it’s so very, very hard to get a good butler or private school these days.

Their skylines have become stacks of safety deposit boxes for persons unknown

Americans have escaped this phenomenon thanks to the Patriot Act, and banking laws that frighten away the most egregious money laundering activities. But a real estate loophole exists, the size of the Panama Canal, and the money is gushing in, along with heightened concerns. New York City and Miami luxury condo prices are going through the roof as their skylines become stacks of safety deposit boxes for persons unknown.

This month, Washington cracked down, as Ottawa should have starting in 2012 when the ruination of Toronto and Vancouver housing costs began. (Last year alone, prices jumped 14 per cent and 30 per cent, respectively.)

In Washington, however, bipartisan legislation has been proposed that will require full transparency of beneficial ownership for real estate and shell companies. More immediately, the U.S. Treasury Department announced creation of a public ownership registry in hot money havens New York City and Miami that will be rolled out nationally.

The real estate loophole is simply that while banks must follow know-your-client rules, developers and lawyers or accountants need not. So stashing cash through these intermediaries in a condo using a shell company owned by a trust in a secrecy haven that, in turn is owned by another shell company offshore is a nifty laundering technique. No one’s the wiser, especially governments, ex-wives, cranky partners, regulators, tax officials, courts or cops.

Canada has become a secrecy haven, unlike the U.S. where a more diligent press exists. For instance, a credible website published that shell companies paying cash bought half of the US$8 billion worth of luxury apartments acquired in New York City in five years.

By comparison, in Vancouver or in Toronto’s condo cluster the percentage of cash deals by anonymous offshore entities and/or “see throughs” or empty laundering vehicles, is unknown. And nobody’s gone to the trouble to ferret out this information.

Using the New York metric, a good guess would be that offshore shells bought half of all the high-priced condos in Vancouver and Toronto. But nobody knows — and that’s the problem.

The lack of transparency is a major global economic risk, according to the G7, United Nations and the Organization for Economic Cooperation and Development. This is because hot money is destabilizing countries that are being abused, and creating real estate bubbles in destination countries. The lack of transparency also enables the spread of terrorism, criminality and tax evasion globally.

The biggest losers are China, where US$1.39 trillion was looted between 2004 and 2013; Russia, with US$1 trillion hidden, and many African nations where the outflow of funds is shrinking their economies.

For years, I’ve tried to hoist the Toronto-Vancouver hot money problem onto the national agenda, with little success. Clearly, Canada’s legal, developer, banking and building lobbies are too powerful and making too much money off these activities.

But the reality is that anyone who owns or rents property in these two cities pays a penalty — call it a Kleptocrat Tax. People are saddled with mortgages that are $200,000 or more higher than they would have been if the bubble hadn’t been allowed.

But letting rich people play fast and loose in Canada is nothing new. Billionaires can move offshore and never pay taxes again, like the Irving patriarch of New Brunswick did and countless others. And my first job in Canada was for the guy who invented the numbered company on behalf of his client, E.P. Taylor, who also built the world’s fanciest tax haven called Lyford Cay in The Bahamas.

But letting them turn our real estate into “conceal estate” must stop because it’s becoming a serious social, taxation, policing and economic burden.

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